In The Loop- November 8, 2024
Protecting Connecticut’s Fiscal Guardrails: UT, OH, what now?
This week saw huge shifts in the country’s politics, and for Connecticut, just a bit of a tweak but an important one. The Connecticut State Democrats picked up one seat making it a supermajority and now “veto-proof.”
With the Connecticut House now at 101 (with one current Democratic seat yet to be called and 50 Republican seats, unless they pick up Torrington’s unconfirmed seat) they too enjoy the supermajority status in the House.
Why should folks care about this “insider” tidbit? Why does this matter other than bragging rights?
Since 2017, Connecticut has been bound by a set of fiscal guardrails aimed at keeping the state’s finances in check, a product of an unprecedented bipartisan alliance that defied conventional party loyalties. These fiscal measures, introduced when a Democratic-led legislature broke when then-Governor Dan Malloy collaborated with Republicans, were designed to prevent the state from falling back into the deficit-ridden cycles of the past. Now, as calls to remove these restrictions grow louder, many worry about the potential for fiscal instability and increased budgetary uncertainty in Connecticut’s future, especially by Governor Ned Lamont.
Bipartisanship set Connecticut up for safe landing in the post-Covid years.
In the summer during the special session of 2017, as Connecticut grappled with deep fiscal challenges, the legislature took an unusual step. Rejecting former Governor Malloy’s proposed budget, a group of moderate Democrats joined forces with Republicans to craft a series of “fiscal guardrails” that aimed to rein in spending and bolster budget stability. This package included measures such as a volatility cap, a revenue cap, limitations on borrowing, and the use of one-time revenue sources.
According to former Republican Senate President Pro Tempore Len Fasano, these guardrails were designed to “provide predictability and discipline to the state’s budgeting process, helping Connecticut avoid the pitfalls of boom-and-bust budgeting.” Democratic leaders also acknowledged that Connecticut needed to change course, with Representative Jason Rojas remarking at the time that “long-term structural reforms were essential to build a more sustainable financial future for Connecticut families.”
The Results: A Stronger Fiscal Outlook –Sustainable Fiscal Planning
Since these measures were implemented, Connecticut’s fiscal health has improved significantly. The volatility cap alone has redirected billions from high-income tax windfalls into the state’s rainy-day fund, reducing the pressure to make sudden cuts when revenue dips. As a result, Connecticut now has over $3 billion in reserves, one of the largest rainy-day funds in the state’s history, which has helped maintain services without resorting to severe cuts or tax hikes during economic downturns.
According to data from the Legislature’s Office of Fiscal Analysis, Connecticut saw a reduction in budget deficits and was able to pay down a portion of its long-standing pension liabilities, saving the state millions in interest payments. Governor Lamont has praised these results, stating that the guardrails have “transformed Connecticut’s fiscal foundation” and insisting that “their removal would risk undoing years of hard-fought progress.”
Legislative Pressure to Dismantle the Guardrails
Despite these successes, recently democratic lawmakers and interest groups have been pressing hard to loosen or remove the guardrails. With Connecticut Democrats holding significant majorities, proposals to lift or modify these fiscal restrictions have gained traction. Critics argue that the current constraints limit their ability to address immediate public needs, especially in areas such as education and healthcare, where advocates say funding has been constrained.
However, each time a measure to weaken the guardrails reaches his desk, Governor Lamont has threatened to use his veto power, standing firm on preserving the state’s fiscal stability. “We can’t go back to the days of budget crises every few years,” Lamont has asserted, warning that dismantling the fiscal guardrails “would be a disservice to future generations.”
What can happen with a Supermajority in each house?
The balance of power in the Connecticut Senate has played a crucial role in keeping these protections intact. A veto-proof supermajority would give legislators the power to override the governor’s veto, potentially dismantling or “readjusting” the fiscal guardrails without executive resistance. Analysts estimate that without these restrictions Connecticut could face future deficits nearing $1 billion and increased borrowing to cover shortfalls.
Fiscal policy advocates, such as Carol Platt Liebau of the Yankee Institute, argue that lifting these caps would open the floodgates for unsustainable spending, leading to higher taxes and more borrowing that would ultimately burden future generations. As Liebau stated, “Connecticut’s fiscal stability should be seen as a hard-won legacy, not something to be undone because it feels restrictive at the moment.”
It will be fascinating to see how the governor and legislative leaders will “do the dance” of negotiations on the fiscal restraints and the arrows in the Governor’s quiver that will put pressure on the Senate and House to keep the guardrails in place. Some believe he will have a very popular State Comptroller on his team as someone who actually looks at the day-to-day spending and revenue shifts and is mandated to keep the state budget in balance at all times.
A Debate Far From Over
With the 2025 legislative session approaching, Connecticut has a critical decision to make. The debate around these fiscal guardrails raises important questions about the role of long-term financial planning in government and the balance between flexibility and discipline. While the guardrails have certainly constrained spending, they’ve also helped secure the state’s financial future, setting a precedent for responsible budgeting.
In a recent statement, Governor Lamont urged lawmakers to “think of these fiscal guardrails as not just limitations, but as guardrails that keep Connecticut on the right road, providing stability and sustainability for all residents.” For now, these fiscal constraints remain, but the future could bring a new wave of debate and, potentially, significant change.
Back in 2017, the bipartisan efforts in the legislature demonstrated the power of working together. It produced Connecticut’s fiscal guardrails and the improvements seen since their implementation, as well as the potential consequences of removing them.
“Those who cannot remember the past are condemned to repeat it.” Attributed to philosopher George Santayana, this adage highlights the importance of learning from past mistakes. Connecticut’s financial struggles are well-documented, and this saying should remind lawmakers to remember why the guardrails were put in place in the first place.
Hopefully, despite the power shift on this issue, Connecticut will be lucky and the supermajorities will carefully, and with the consent of the Governor, craft a budget that meets the needs of the residents while maintaining a stable and balanced future.
Hold on I’m sure we’re gonna see some fireworks before it’s over and done.